By Esther Fung
BEIJING--The property developer Kaisa Group Holdings Ltd. could
face a fight with its offshore creditors after offering
restructuring terms on US$2.5 billion in debt that would leave them
worse off than Chinese lenders, analysts said.
Kaisa, in a conference call with offshore creditors and analysts
on Monday morning, reiterated terms for offshore creditors it
proposed on Sunday and highlighted the threat of a liquidation. It
said offshore creditors would recover only 2.4% of their investment
if a rescue deal with another property developer, Sunac China
Holdings Ltd., fails.
Offshore creditors "may not accept the first offer, and I expect
there will be some negotiation," said Standard & Poor's credit
analyst Christopher Lee. "At face value, the terms offered to both
onshore and offshore creditors appear to be similar, but the
offshore creditors are worse off."
More than two dozen foreign fund companies, ranging from
BlackRock Inc. to Fidelity Investments, owned Kaisa debt in recent
months, according to Thomson Reuters, but it isn't clear how many
currently hold the debt. BlackRock and Fidelity declined to comment
on Monday.
Brandon Gale, a senior vice president at Houlihan Lokey, Kaisa's
financial adviser, said they were "getting feedback" from the
creditors, and declined to give additional details. Neil McDonald,
a partner at the law firm Kirkland and Ellis who is representing
offshore creditors in negotiations with Kaisa, didn't respond to
requests for comment.
Standard & Poor's said Monday that it will downgrade
Kaisa--the company is already rated below investment grade--and
lower the ratings on its outstanding notes if it completes the
restructuring of offshore debt under the current proposed terms.
Kaisa's notes, which are currently rated "CC," could be downgraded
to "D" because S&P views the current terms as a "distressed
exchange offer."
The terms, disclosed in a filing to the Hong Kong Stock Exchange
late Sunday, include cutting the interest rates on six issuances of
bonds and convertible bonds by as much as two-thirds and extending
the maturities of the debt by five years. While offshore creditors
stand behind onshore creditors in the line to get their money, some
analysts said that the terms offered to the former seemed
disproportionate.
"Kaisa is facing liquidity rather than insolvency issues," said
Glenn Ko, an analyst at UBS Global Research, in a note. "Hence, we
are surprised to see the five-year maturity extension across the
board and consider the extension not necessary."
Kaisa has asked the offshore bondholders to approve the
restructuring by March 20.
Last week, Kaisa said it was looking to extend maturities on its
Chinese onshore debt by three to six years, and to reduce coupon
payments to a floor of 70% of the base rate set by the People's
Bank of China, China's central bank. The PBOC's one-year benchmark
lending rate is currently 5.35%.
"It appears the creditors are forced to take a longer view as
they'd have to remain invested in the firm for 10 years," said Mr.
Lee.
Some offshore creditors are betting on the possibility that
Kaisa could sweeten its restructuring offer to complete the rescue
from Sunac China. The developer plans to acquire 49.25% of Kaisa
for 4.55 billion Hong Kong dollars (US$586 million) and then buy
the rest from investors--a plan that Kaisa says hinges on its
ability to restructure its debt.
"It's the opening round, and it's a game of chicken," said one
lawyer who has knowledge of the discussion among creditors.
Kaisa's woes started late last year, when authorities in
Shenzhen, where the company is based, blocked sales of properties
in a number of its projects in the southern city, without providing
a reason. Numerous senior executives later resigned, including
Chairman Kwok Ying Shing.
Many creditors demanded early repayment of debt after his
resignation. In response to litigation by the lenders, local courts
in cities across China have blocked sales or frozen 22 of the
firm's projects and bank accounts.
Kaisa said that its total cash balance has declined to 1.9
billion yuan (US$303 million) as of March 2 from 10.9 billion yuan
in June, due to the sale blockages and asset freezes. The company
said that it will run out of cash by the middle of 2015.
In December, the property developer said it had 65 billion yuan
of debt, more than double the 30 billion yuan it had in late
June.
A dollar-denominated Kaisa bond due 2017 fell 8 cents to 51.4
cents on the dollar, while its shares fell as much as 3.7% to
HK$1.57 during intraday trading Monday, before ending at
HK$1.58.
Anjie Zheng
in Hong Kong contributed to this article.
Write to Esther Fung at
esther.fung@wsj.com<mailto:esther.fung@wsj.com>
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